Is An ICO The Right Funding Option For Your Startup?

To ICO or not to ICO: That is the question.

The question that remains, though, is whether an ICO is the right option for every startup.

Startup founders need to determine whether to go for an ICO instead of VC funding, or a corporate accelerator program, or any other traditional fundraising method. To do so, it is imperative to understand the primary factors that can positively or negatively influence an ICO.

It didn’t take long for ICOs to gain popularity as a fundraising method once they were introduced. Slowly, a growing number of startups began to choose ICOs over VC funding or other funding methods. As a result, the current ICO market is highly competitive. The number of people who can invest in an ICO is larger than that in VC funding (since retail investors also invest in ICOs, in addition to large funding companies). However, with so many ICOs being launched, the existing market is spoiled for choice. Hence, an ICO cannot be run successfully on the basis of a good product or whitepaper alone. Founders need to consider implementing strong and effective marketing efforts to pull attention away from competing ICOs and raise the required funds.

VC funding involves receiving an investment in exchange for a stake in a startup. This means that when a founder brings a venture capitalist on board, he/she often loses control over a certain percentage of their company operations and profits. ICOs do not require giving up control. Investors receive tokens that they can sell in the future (in the event of a price rise) or through which they can utilise the product/offering of the startup. As a result, the founder continues to maintain complete control and own a complete stake in the startup. Hence, the amount of control a founder is willing to give up can influence the funding decision.

ICOs are intrinsically technical. While traditional funding, through its cash inflow, can be considered simpler, ICOs are participated in through Bitcoin or Ethereum. Investors need to first use fiat currency to buy Bitcoin and then invest in the ICO using the cryptocurrency. The backend work involved in enabling this process isn’t simple. Founders need to either be tech-savvy themselves, or have the right contacts and funds to be able to outsource the development of a platform that will enable the ICO to take place. Hence, how much of the technical process a founder understands will sway the decision towards or away from an ICO.

ICOs are no longer just about a good product or whitepaper. With numerous ICOs being run every day, standing apart from the competition is imperative, and the right marketing efforts play a large role in achieving this. However, the marketing of an ICO is different. In fact, there are experts dedicated to the field of ICO marketing. Startup founders need to consider their access to such a dedicated team and the funds required to pay for these services. Whether this is within their reach or not can determine if the startup should go ahead with an ICO.

There has been a lot of movement on the legal front regarding cryptocurrencies and ICOs. While some countries have completely banned ICOs and cryptocurrency trading, others have incorporated digital currency trading into securities laws to enable governance. Where a startup is located and to which country it is opening its ICO will greatly affect its success. Furthermore, it isn’t easy to circumvent the many (and constantly changing) laws. As a result, ICOs often need to be run under the guidance of a dedicated legal team that specialises in the fundraising method. Hence, a startup founder’s decision to go for an ICO will be influenced by whether they have access to such expertise.

ICOs do not have many of the costs involved in traditional funding methods (for example, traveling to meet VCs or angel investors). However, they do have costs inherent to them. A good website, setting up a secure platform on which the ICO will run, and hiring the right talent and teams are just some of the elements that add to the cost of an ICO. Furthermore, as competition in ICOs grows, costs involved grow too. For instance, marketing has to be at as large and widespread a scale as possible, which increases costs. Hence, startup founders need to hold funds prior to beginning their fundraising through an ICO. Whether they have access to such seed investment or not will determine whether they will be able to run an ICO successfully.

The public view towards ICOs and cryptocurrencies is varied, with almost an equal number of people being for as against them. Furthermore, previous scams and failed ICOs have also caused investors to be wary. Even if an ICO manages to attract attention, slight changes such as t token price or overall attitude towards the ICO as observed on forums and discussion platforms can set off panic. Hence, maintaining stability and being prepared for every contingency becomes extremely important. Whether a startup founder is prepared to handle any backlash to appease concerns that may arise will determine whether they will be able to run an ICO without any problems.

The fact of the matter remains that there is no single, right answer to this question. Whether a founder should opt for an ICO over traditional funding methods is subjective, and particular to individual circumstances.

After considering all the above points and factors, founders need to determine where they stand.

Can they handle the competition in the ICO market? How much control do they want to retain? Do they have the technical skills required? Do they have access to dedicated legal and marketing teams that also hold the necessary experience in the right location? Do they possess the funds necessary to get hire the skills and teams they need? Have they thought of every possible contingency and are they well-prepared to handle all unexpected events, within and outside of their control?

The answers that a founder has to these questions will determine whether or not an ICO is the right fundraising option for their startup. Understanding the criteria that can influence the planning and implementation of an ICO marks the first step towards being able to reach these answers.

Related posts:

Bullying is a pervasive problem in the United States. Recent reports that capture bullying in first person and cyberbullying are shocking and disheartening. Bullying can be a type of aggression when…

Real talk. When you say you don’t have enough time to write, chances are that time already exists in your day. You just aren’t giving that available time the respect it deserves, because it’s “too…

Your personality is so strong that it’s intimidating them. They just can’t deal with your intellect, complexity and deeply ingrained emotional strength. Narcissism is a tendency to think very highly…